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I have just published a book which tries to explain and, to the extent possible, predict the outcome of the euro crisis. It follows the same pattern as my other books: it contains an updated version of my conceptual approach, the application of that approach to a particular situation and some kind of real time experiment to test the validity of my argument.

The book is not complete because the crisis is still ongoing. Indeed, what I am saying today is a part of the real time experiment. I won’t repeat or summarize what’s in the book. You’ll have to read it for yourselves. All I can do is to bring you up to date.

The measures introduced by the European Central Bank in December, including the LTRO, have relieved the liquidity problems of European banks but they did not cure the financing disadvantage from which the highly indebted member states suffer. Since the high risk premiums on Italian and Spanish bonds endanger the capital adequacy of the banks which hold those bonds, half a solution is not enough. It leaves the weaker members of the eurozone relegated to the status of third world countries that became highly indebted in a foreign currency. Instead of the IMF, Germany is acting as the task master imposing tough fiscal discipline. This will generate both economic and political tensions that could destroy the European Union.

I have proposed a plan that would allow Italy and Spain to refinance their debt by issuing treasury bills at around 1%. I named it after Tommaso Padoa-Schioppa, in memory of my friend who as central banker helped to stabilize Italy’s finances in the 1990’s. The plan is rather complicated, but it is legally and technically sound. It allows the ECB in partnership with the EFSF and the ESM to do what the ECB couldn’t do on its own: act as lender of last resort. I describe it in detail in my new book.